Medicare Rates Face Predictable Cuts in 2013

Philip Betbeze, December 30, 2011

The Medicare Payment Advisory Commission, which makes recommendations on Medicare inpatient and outpatient payment rates, will likely recommend to Congress an increase in inpatient and outpatient payments to hospitals of only 1% in fiscal year 2013, a draft recommendation reveals.

As revelations go, the recommendation is not much of a shocker. For at least the past three years, MEDPAC has made that 1% recommendation.

No matter how you slice it, that rate is below the rate of inflation. Even the most conservative inflation calculations show that it has hovered around 3% for more than the past decade.  So in real terms, MEDPAC's likely recommendation represents a cut.

The clear message is that whether or not hospitals are overpaid on Medicare rates, though Congress has a history of playing good cop to MEDPAC's bad cop, both are acting as though hospitals are overpaid.

In fact, plenty of evidence exists that hospitals are losing money on Medicare patients. How much or how little can range from 10% to 30%. They make it up in volume.

Just kidding. They make it up, largely, through cross-subsidization, and many hospitals have been able to make up some of the cuts by doing much-needed process engineering work, among other efficiency initiatives.

But much of hospitals' ability to maintain a small margin still results from cross-subsidization. Indirect subsidies from commercial insurers ultimately pay for inadequate government payment rates by overpaying for their members' care. That's the idea,  anyway.  

I once thought that cross-subsidization wasn't going to be able to continue to carry that weight for much longer. That was in 2008. Now, as we rapidly close in on 2012, I'm not so sure.

Philip Betbeze

Philip Betbeze is the senior leadership editor at HealthLeaders Media.

Facebook icon
LinkedIn icon
Twitter icon